)' . If /. t l ,./ . U.S. OFFICE OF PERSONNEL MANAGEMENT OFFICE OF THE INSPECTOR GENERAL OFFICE OF AUDITS .JFi»~lA~dit~ep()rt . . .,A,lldft·•.,Of,·..th;e .• Federal.• E}ll1pl0y.((.e·~· . ··Health· ,.B.en.efits··•. ~r()gr·a1n. '. . '. ,·Oper~tionsof·1\t1¥~lIltflgelf~~Ith·.SQlutiQ.Il~,···IIl.Ct.··· . Date: June 24," 2009 ,--:CA UTIQN--+ this &uditrepor't h;Js been dis'ri.buiid toFederal and Doo-Federaioffidals who are respcnsibleIor.the administration or the audited . cuntract, This report may contain proprietary da'aw~ich is protected by Federal law (18.U$.C.1905); therefore, while thlsreport is .. avallableunderthe Freedom oflnformatiQn Act, cautionneeds to be exercised before releasing thereport to the general public. . UNITED STATES OFFICE OF PERSONNEL MANAGEMENT Washington, DC 20415 Office of the Inspector General AUDIT REPORT Federal Employees Health Benefits Program Community-Rated Health Maintenance Organization Advantage Health Solutions, Inc. Contract Number CS 2862 - Plan Code 6Y Indianapolis, Indiana Report No. lC-6Y-OO-09-004 Date: June 24, 2009 Michael R. Esser Assistant Inspector General for Audits www.opm.gov www.lIsajobs.gc>v UNITED STATES OFFICE OF PERSONNEL MANAGEMENT Washington. DC 204]5 Office of the Inspector General EXECUTIVE SUMMARY Federal Employees Health Benefits Program Community-Rated Health Maintenance Organization Advantage Health Solutions, Inc. Contract Number CS 2862 - Plan Code 6Y Indianapolis, Indiana Report No. lC-6Y-OO-09~004 Date: June 24, 2009 The Office ofthe Inspector General performed an audit of the Federal Employees Health Benefits Program (FEHBP) operations at Advantage Health Solutions, Inc. (Plan). The audit covered contract years 2003 through 2008 and was conducted at the Plan's office in Indianapolis, Indiana. This report questions $439,823 for defective pricing in 2005 and 2007, including $57,035 for related lost investment income. We found that the FEHBP rates were developed in accordance with the Office of Personnel Management's rules and regulations in contract years 2003,2004,2006, and 2008. We determined that the FEHBP rates were overstated by $196,932 for contract year 2005 because the Plan overstated its capitation increase, charged the FEHBP unsupported benefit loadings, and applied retention to the dental benefit twice. We determined that the FEHBP rates were overstated by $185,856 for contract year 2007 because the Plan overstated its capitation increase, charged the FEHBP unsupported benefit loadings, applied retention to the dental benefit twice, and did not completely apply a Similarly Sized Subscriber Group discount to the FEHBP's rates. Consistent with the FEHBP regulations and the contract, the FEHBP is due $57,035 for lost investment income, calculated through April 30,2009, on the defective pricing findings. www.opm.gov www.usajobs.gov CONTENTS EXECUTIVE SUMMARY i 1. INTRODUCTION AND BACKGROUND 1 . . II. OBJECTIVES, SCOPE, AND METHODOLOGY 3 III. AUDIT FINDINGS AND RECOMMENDATIONS 5 Premium Rates r 5 1. Defective Pricing 5 2. Lost Investment Income 7 IV. MAJOR CONTRIBUTORS TO THIS REPORT. 8 Exhibit A (Summary of Questioned Costs) Exhibit B (Defective Pricing Questioned Costs) Exhibit C (Lost Investment Income) Appendix (Advantage Health Solutions, Inc. April 2, 2009, response to the draft report) I. INTRODUCTION AND BACKGROUND Introduction We completed an a'udit ofthe Federal Employees Health Benefits Program (FEHBP) operations at Advantage Health Solutions, Inc. (Plan) in Indianapolis, Indiana. The audit covered contract years 2003 through 2008. The audit was conducted pursuant to the provisions of Contract CS 2862; 5 U.S.C. Chapter 89; and 5 Code of Federal Regulations (CFR) Chapter 1, Part 890. The audit was performed by the Office of Personnel Management's (OPM) Office ofthe Inspector General (OIG), as established by the Inspector General Act of 1978, as amended. Background The FEHBP was established by the Federal Employees Health Benefits Act (Public Law 86 382), enacted on September 28, 1959. The FEHBP was created to provide health insurance benefits for federal employees, annuitants, and dependents. The FEHBP is administered by OPM's Center for Retirement and Insurance Services. The provisions of the Federal Employees Health Benefits Act are implemented by OPM through regulations codified in Chapter 1, Part 890 of Title 5, CFR. Health insurance coverage is provided through contracts with various health insurance carriers that provide service benefits, indemnity benefits, or comprehensive medica! services. Community-rated carriers participating in the FEHBP are subject to various federal, state and local laws, regulations, and ordinances. While most carriers are subject to state jurisdiction, many are further subject to the Health Maintenance Organization Act of 1973 (Public Law 93 222), as amended (i.e., many community-rated carriets are federally qualified). In addition, participation in the FEHBP subjects the carriers to the Federal Employees Health Benefits Act and implementing regulations promulgated by OPM. The FEHBP should pay a market price rate, FEHBP Contracts/Members which is defined as the best rate offered to March 31 either of the two groups cJosest in size to the FEHBP. In contracting with community-rated 3,000 I"" carriers, aPM relies on carrier compliance with 2,500 appropriate laws and regulations and, 2,000 consequently, does not negotiate base rates. 1,500 "l' OPM negotiations relate primarily to the level I"" of coverage and other unique features of the 1,000 - " FEHBP. ,.... I. J. " The chart to the right shows the number of 500 0 :1. 2003 III 2004 2005 2006 2007 III 2008 ,. FEHBP contracts and members reported by the I_ Contracts 604 1,085 1,236 614 518 788 Plan for March 31 of each contract year IEJMembers 1,459 1,481 2,688 1,292 1,015 1,552 audited. 1 The Plan has participated in the FEHBP since 200 I and provides health benefits to FEHBP members throughout most of Indiana. The last audit conducted by our office covered contract years 2001 through 2005. As a result of that audit, we found that the Plan's rating of the FEHBP in contract year 2001 was in accordance with the applicable laws, regulations, and aPM rating instructions. In contract year 2002, we found that there were inappropriate health benefit charges to the FEHBP, which were then fully reimbursed by the Plan. However, we found that the Plan could not fully support their rating methodologies in 2003 through 2005; therefore, we did not issue an opinion for these years with the intent to re-audit those years as part of the current audit. The preliminary results ofthis audit were discussed with Plan officials at an exit conference and through subsequent correspondence. A draft report was also provided to the Plan for review and comment. The Plan's comments were considered in the preparation of this final report and are included, as appropriate, as the Appendix. 2 II. OBJECTIVES, SCOPE, AND METHODOLOGY Objectives The primary objectives of the audit were to verify that the Plan offered market price rates to the FEHBP and to verify that the loadings to the FEHBP rates were reasonable and equitable. Additional tests were performed to determine whether the Plan was in compliance with the provisions of the laws and regulations governing the FEHBP. We conducted this performance audit in FEHBP Premiums Paid to Plan accordance with generally accepted government auditing standards. Those $10 standards require that we plan and perform the $8 audit to obtain sufficient, appropriate evidence $6 to provide a reasonable basis for our findings and conclusions based on our audit objectives. $4 We believe that the evidence obtained provides $2 a reasonable basis for our findings and $0 conclusions based on our audit objectives. • Revenue This performance audit covered contract years 2003 through 2008. For these contract years, the FEHBP paid approximately $35.3 million in premiums to the Plan. The premiums paid for each contract year audited are shown on the chart to the right. OIG audits of community-rated carriers are designed to test carrier compliance with the FEHBP contract, applicable laws and regulations, and OPM rate instructions. These audits are also designed to provide reasonable assurance of detecting errors, irregularities, and illegal acts. We obtained an understanding of the Plan's internal control structure, but we did not use this information to determine the nature, timing, and extent of our audit procedures. However, the audit included such tests of the Plan's rating systems and such other auditing procedures considered necessary under the circumstances. Our review of internal controls was limited to the procedures the Plan has in place to ensure that: • the appropriate similarly sized subscriber groups (SSSG) were selected; • the rates charged to the FEHBP were the market price rates (i.e., equivalent to the best rate offered to an SSSG); and • the loadings to the FEHBP rates were reasonable and equitable. In conducting the audit, we relied to varying degrees on computer-generated billing, enrollment, and claims data provided by the Plan. We did not verify the reliability of the data generated by 3 the various information systems involved. However, nothing came to our attention during our audit testing utilizing the computer generated data to cause us to doubt its reliability. We believe that the available data was sufficient to achieve our audit objectives. Except as noted above, the audit was performed in accordance with generally accepted government auditing standards, issued by the Comptroller General of the United States. The audit fieldwork was performed at the Plan's office in Indianapolis, Indiana, during November 2008. Additional audit work was completed at our office in Cranberry Township, Pennsylvania. Methodology We examined the Plan's federal rate submissions and related documents as a basis for.validating the market price rates. In addition, we examined the rate development documentation and billings to other groups, such as SSSGs, to determine if the market price was actually charged to the FEHBP. Finally, we used the contract, the Federal Employees Health Benefits Acquisition Regulations (FEHBAR), and OPM's Rate Instructions to Community-Rated Carriers to determine the propriety of the FEHBP premiums and the reasonableness and acceptability of the Plan's rating system. To gain an understanding of the internal controls in the Plan's rating system, we reviewed the Plan's rating system's policies and procedures, interviewed appropriate Plan officials, and performed other auditing procedures necessary to meet our audit objectives. 4 III. AUDIT FINDINGS AND RECOMMENDATIONS Premium Rates 1. Defective Pricihg $382,788 . The Certificates of Accurate Pricing the Plan signed for contract years 2005 and 2007 were defective. In accordance with federal regulations, the FEHBP is therefore due a price adjustment for each year. We applied the defective pricing remedies for the years in question and determined that the FEHBP is entitled to premium adjustments totaling $382,788 (see Exhibit A). We found that the FEHBP rates were developed in accordance with the applicable laws, regulations, and aPM rating instructions in contract years 2003, 2004, 2006, and 2008. Carriers proposing rates to aPM are required to submit a Certificate of Accurate Pricing certifying that the proposed subscription rates, subject to adjustments recognized by OPM, are market price rates. aPM regulations refer to a market price rate in conjunction with the rates offered to an SSSG. If it is found that the FEHBP was charged rates that exceeded the market price (i.e., the best rate offered to an SSSG), a condition of defective pricing exists, requiring a downward adjustment of the FEHBP premiums to the equivalent market price. During the scope of our audit, the Plan contracted with physician hospital organization (PHD) providers to deliver covered services to its members. Many of these PHO contracts were capitated, meaning the Plan paid the PHO a fixed per-member-per-month (PMPM) amount for each member selecting a PHD physician. The PHO assumes the risk of incurring medical expenses above the capitation level. The Plan retains a certain percentage of group premiums to cover administrative expenses. In developing group premium rates, the Plan uses a capitation-based Adjusted Community Rating (ACR) methodology. This methodology compares group-specific capitation expense with actual PHD medical claims expense to determine the required change in the PHD capitation at a group's renewal. However, this reguired capitation increase/decrease was only used as a negotiating tool with its PHD. A group's actual renewal rate is based on the end results of the Plan's negotiated capitation increase/decrease. This method of setting a group's renewal rate is subjective and arbitrary. In order to determine whether the FEHBP received a market price rate, we used the required capitation increase/decrease as our basis for evaluating each groups' rates in each year of our audit. Further, pharmacy benefits are rated using actual claims expense. Lastly, special benefits, such as family planning, vision, mental health and substance abuse, Healthy Allies, and dental are rated using a flat-fee PMPM capitation. We agree with the Plan's selection o f _ and as the SSSGs for contract ear 2005. Our anal sis of the rates charged to the SSSGs shows that ~or eceived a discount. 5 percent. We also found that the $. The Plan originally applied a negotiated capitation increase ofllpercent to the FEHBP's current capitation rate. However, we found that the required capitation increase was. PMPM mental health and substance abuse (MHSA) capitation rate used by the Plan should actually have been ~ PMPM. Additionally, the family planning capitation rate of ~ PMPM was not fully supported. We reduced it to the filed rate of SIIIIPMPM. Finally, we determined that the Plan overcharged the retention portion ofthe FEHBP dental rate. We re-developed the FEHBP's rates by correcting the above noted exceptions. A comparison of our audited line 5 rates to the Plan's proposed rates shows that the FEHBP was overcharged $196,932 in 2005 (see Exhibit B). We agree with the Plan's selection of a n d _ as the SSSGs for contract year 2007. Our analysis of the rates charged to the SSSGs shows that _ _ received a"percent discount, which was not applied to the F E H B P . _ did not receive a discount. For the Plan originally applied a negotiated capitation increase o f . Plan should actually have been $_ percent to the current capitation rate. However, we found that the required capitation increase was .percent. We also found that the $_PMPM MHSA capitation rate used by the PMPM. Additionally, the ~PMPM family planning capitation rate used by the Plan was unsupported. We reduced it to the actual filed rate of $.PMPM. These exceptions resulted in II receiving a percent discount. . For the FEHBP, the Plan originally applied a negotiated capitation increase of. percent to . the current capitation rate. However, we found that the required capitation increase was. ·percent. We also found that the ~PMPM MHSA capitation rate used by the Plan should actually have been $.PMPM. Additionally, the ~MPM family planning capitation rate used by the Plan was unsupported. We reduced it to the actual filed rate of ~PMPM. Finally, we determined that the Plan overcharged the retention portion of the FEHBP dental rate. We re-developed the FEHBP's rates by correcting the above noted exceptions and applying the. percent discount. A comparison of our audited line 5 rates to the Plan's proposed rates shows that the FEHBP was overcharged $185,856 in 2007 (see Exhibit B). . Recommendation 1 After receiving the draft report, the.Plan returned $382,788 to the FEHBP for defective pricing in contract years 2005 and 2007. Since we verified that the Plan returned the total questioned costs to the FEHBP, no further action is required. 6 2. Lost Investment Income $57,035 In accordance with FEHBP regulations and the contract between OPM and the Plan, the FEHBP is entitled to recover lost investment income on the defective pricing findings in contract years 2005 and 2007. We determined that the FEHBP is due $57,035 for lost investment income, calculated through April 30, 2009. FEHBAR 1652.215-70 provides that, if any rate established in connection with the FEHBP contract was increased because the carrier furnished cost or pricing data that was not complete, accurate, or current as certified in its Certificate of Accurate Pricing, the rate shall be reduced by the amount of the overcharge caused by the defective data. In addition, when the rates are reduced due to defective pricing, the regulation states that the government is entitled to a refund and simple interest on the amount of the overcharge from the date the overcharge was paid to the carrier until the overcharge is liquidated. Our calculation of lost investment income is based on the United States Department of the Treasury's semiannual cost of capital rates. Recommendation 2 After receiving the draft report, the Plan returned $57,035 to the FEHBP for lost investment income, calculated through April 30,2009. Since we verified that the Plan returned the total lost investment income amount to the FEHBP, no further action is required. 7 IV. MAJOR CONTRIBUTORS TO THIS REPORT Community-Rated Audits Group • Auditor-in-Charge Staff Auditor Staff Auditor Chief Senior Team Leader 8 Exhibit A Advantage Health Solutions Summary of Questioned Costs Defective Pricing Questioned Costs: Contract Year 2005 $196,932 Contract Year 2007 $185,856 Total Defective Pricing Questioned Costs $382,788· Lost Investment Income $57,035 Total Questioned Costs $439,823 Exhibit B Advantage Health Solutions Defective Pricing Questioned Costs 200S Contract Year Single Family Plan's Proposed Rates Audited Rates Biweekly Overcharge To Annualize: x March 31, 2005 Headcount x Pay Periods •- ••26 26 Subtotal· $51,145 $145,787 Amount Due FEHBP in 2005 $196,932 2007 Contract Year Single Family Plan's Proposed Rates Audited Rates Biweekly Overcharge To Annualize: x March 31, 2007 Headcount . --x Pay Periods •- ••26 26 Subtotal $62,704 $123,152 Amount Due FEHBP in 2007 $185,856 Total Defective Pricing Questioned Costs $382.788 ExbibitC Advantage Health Solutions Lost Investment Income Year 2005 2006 2007 ··2008 4/30/2009 Total ~ Audit Findings: Defective Pricing $196,932 $0 $185,856 $0 $0 $382,788 Totals (per year): $196,932 $0 $185,856 $0 $0 $382,788 Cumulative Totals: $196,932 $196,932 $382,788 $382,788 $382,788 $382,788 Average Annual Interest Rate: 4.375% 5.4375% 5.5000% 4.9375% 5.6250% Interest on Prior Years Findings: $0 $10,708 $10,831 $18,900 $7,177 $47,616 Current Years Interest: $4,308 $0 $5,11 1 $0 $0 $9,419 Total Cumulative Interest $4,308 $10,708 $15,942 $18,900 $7,177 I $57,035 Through April 30, 2009 Appendix 2009 APR 2I PI~ 2: 28 ADVANTAGE ...rising above the serviceyou , expect,.. April 2, 2009 Chief, Community-Rated Audits Group U.S. Office of Personnel Management Office of the Inspector General 1900 E Streets, NW Room 6400 Washington, D.C. 20415-1100 Dear_: ADVANTAGE Health Solutions has received the draft report dated March 3, 2009, detailing the results of FEHBP, audit forcontract ye~rs20o.3 tlar:cugh 2008. After reviewing the draft report and the details of the .a~dit findings;'A.,DVANTAGE:_ilgrees with the aPM and its findings for contract year 2005 of $196,132 and for contract year 2007 of $185,856. ADVANTAGE is prepared to submit payment to the aPM in the amount of the audit findings for defective pricing in years 2005 and 2007 plus the lost investment income of $49,858. AOVANTAG~ wishes to submit payment promptly, please provide instructions as to where payment s~i?'::i1~'be sent, ,;...; Sincerely, ?~u+).~· Jennifer Ponski ChieffinancialOfficer ADVANTA~~ Health' Solutions . i _... j , • I, ' _. ;. ''>~' ~ : ,-~-,,:) :' i _~ . ADVANTAGE Health Solutions, Inc. SM l , .',c I· .. 9045 River Road, Suite 200 Indianapolis, Indiana 46240 I C· ·1·877 -901-2237 I www.advantageplan.com
Audit of FEHBP of Advantage Health Solutions, Inc
Published by the Office of Personnel Management, Office of Inspector General on 2009-06-24.
Below is a raw (and likely hideous) rendition of the original report. (PDF)